Stanbic Bank Records 9.4 Percent PAT Decline in 1st Quatre of 2017

Stanbic Bank has posted the 1^st Quatre 2017 numbers marking a 9.4 percent decline in profit after tax to 1.08 billion shillings. According to the financial statement, the numbers were weaker than expected with total income going down by 9.9 percent and operating costs up 4.7 percent. Operating income before allowance for impairments was down 23.8 percent.

The lender witnessed the following positives during the first quarter:

1. Fees and commission income went up 31.3 percent.Covering for part of the shortfall in FOREX income (-35.5 percent), fee and commission income was boosted by an 115 percent and 23.5 percent jump in loan fees and other fee income (respectively). Overall, Non-Interest Revenue (NIR) to total income at 42.3 percent remained above FY16 industry average of 31 percent. With their NIR growth forecast at 5.8 percent and 1Q17 NIR down 6.3 percent, the group needs stronger numbers in the remaining quarters to catch up to our forecasts.

The following were the negatives:

1. Non-Performing Loan (NPL) ratio up 100bps y/y to 6.1 percent.This, however, was unchanged q/q. More disappointingly, allowance for impairment losses was down 42.3 percent y/y pointing to lower coverage levels. With only bank numbers available, NPL ratio and loan loss provision growth seem to be falling behind our overall FY17 forecasts of 5.7percent and 61.5percent y/y growth respectively. This would be a factor to watch for in 1H17 Stanbic Holdings numbers as our expectation is a slight decline in NPL and more aggressive loan loss provision to improve the reduced coverage levels.
2. Cost To Income (CTI) increased to 56.7 percent Vs. 48.85 in 1Q16.In addition to reduced total income, a 9.4percent y/y rise in other costs pushed operating costs upwards. In our view, going forwards, we expect staff costs to grow at a slower rate compared to historically while investments in alternative channels are likely to hinder attempts to see other costs decline. Our forecasts on CTI for the listed entity is at 50.3 percent which is higher than FY16 industry average of 47.99 percent
3. NIM down 100 bps y/y to 5.9percent. Similar to NIC Bank, erosion on loan WAIR was more than expected despite the lender already lending at sub 14percent levels. On the positive side, Cost of Funds declined to 2.6 percent from 3.7 percent in 1Q16. With data from CBK showing a consistent decline in interest-earning deposits in 4Q17, we expect to see reduced CoF across the sector. Overall, loans and deposits were up 11.4percent y/y and 20percent y/y, a commendable performance.